2. Materials Costs not complete

Question 1

Re-order level =

Answer 1

(Average usage * Average lead time) + Buffer

Question 2

Maximum order quantity =

Answer 2

Max inventory level - Buffer

Question 3

Economic Order Quantity (EOQ) =

Answer 3

✔️ 2 * Ann. usage * Order cost
———————————
Inventory holding cost

Question 4

When constructing an inventory record for AVCO remember:

Answer 4

Round up or down to the penny.

Calculate the new balance by taking last balance and deducting issue amount (don’t calculate new balance by using the quantity and average price)

Question 5

Name 2 main methods of planning purchases and inventory control

Answer 5

1. Perpetual inventory

2. Just in time (JIT)

Question 6

Material Purchases : Fixed Quantity Method.

Name the inputs needed

Answer 6

1. The Maximum inventory level that can be held.
2. The inventory buffer (Minimum level)
3. Lead time.
4. Re-order level.
5. appropriate Re-order quantity

Question 7

Calculation for Buffer (min level)

Answer 7

Buffer = Re-order level - (ave useage x ave lead time)

Question 8

Elements needed to calculate EOQ

Answer 8

1. Ordering cost
2. Inventory holding cost
3. Annual Usage